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EXECUTIVE SUMMARY
Welcome to Fairwood
Fairwood is a community of approximately 25,000 people located east of
Renton inside the urban growth area of King County, Washington. The
community is predominantly residential, and has a retail area at the
crossroads of SE Petrovitsky Road and 140th Way SE.
Fairwood considers incorporation
Washingtons 1990 Growth Management Act (GMA) includes a strong
impetus and rationale for unincorporated parts of urban areas to become
municipal areas, either by incorporation or by annexation to existing cities.
King County Countywide Planning Policies adopted to implement GMA
provide all unincorporated areas within the Urban Growth Boundary will
assume incorporated status either through annexation or incorporation by2012.
In June 1999, a group of residents in the Fairwood area (also called the
Petrovitsky Corridor) requested a study assessing the governance
alternatives available to the area. The study Petrovitsky Corridor
Governance Options Study was published in September 2000.
In the 2004 budget, King County launched a major initiative to facilitate thetransition of the remaining urban unincorporated areas to incorporated
status. Fairwood is one of ten large communities identified by the county as
a priority community for transition.
In September 2005, a group of citizens in the Fairwood area (also called the
Petrovitsky Corridor) petitioned the Washington State Boundary Review
Board for King County (BRB) to initiate the process of incorporation. The
study Analysis of the Financial Feasibility of the Proposed City of Fairwood
was published in January 2006.
The citizens of the Fairwood area voted on incorporation in September 2006.
The outcome was to retain unincorporated status. The close result (only 136
votes separated the sides) prompted another group of Fairwood citizens to file
a notice of proposed incorporation with the BRB on April 16, 2007 for another
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Our goal is to assemble a report that will provide Fairwood residents with the
information necessary to make well-informed decisions about their future.
Is incorporation feasible?
The purpose of our financial analysis is to provide the reader with facts,
assumptions and estimates of future revenues and costs for an incorporated
City of Fairwood. The reader can conclude from this information whether or
not an incorporated Fairwood is financially feasible. In general, if revenues
exceed costs, incorporation is financially feasible, and there may be
opportunities for increased services and/or reduced taxes. Conversely, ifrevenues are less than costs, incorporation may not be financially feasible
unless services are reduced and/or revenues are increased.
Section 6 of our report compiles and compares the revenues and costs for
Fairwood, including an overall summary and separate analyses of the general
fund, stormwater fund, and several funds for transportation capital
improvements.
Which services will change, and which will stay the same if Fairwoodincorporates?
When an area incorporates as a city, the responsibility for each governmental
service falls into one of three categories. If Fairwood incorporates, the
following would be the most likely provider of public services to the
community:
Services to be Provided by Existing Agencies
Public Health King County
Schools Renton School District and Kent School District
Solid Waste Waste Management
State Roads State of Washington
Transit Sound Transit and King County Metro
Services to be Provided by the City of Fairwood (employees and/orcontracts) Law Enforcement (Police, Jail, Courts, Animal Control)
Streets and Roads
Stormwater
Land Use Planning and Regulation
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Fire Protection and Emergency Medical Services Fire Districts 40 and
37
Library King County Library System (District) Regional Parks and Recreation King County
Is preserving the status quo a viable option?
The answer to this question depends on what one means by the status quo. If
one means remaining an unincorporated urban area, then preserving the
status quo is entirely possible. While state and county policies encourage
unincorporated, urban areas to pursue incorporated status, under currentlaw, it is not possible to force a community to incorporate or annex to a
neighboring city.
If, on the other hand, one thinks of preserving the status quo as continuing to
receive current levels of services at current rates of taxation, then preserving
the status quo becomes somewhat less realistic. As directed by state policies,
King County is now encouraging all unincorporated areas within the Urban
Growth Boundary to pursue incorporated status or annex to existing cities.As more and more of these areas transition to incorporated status, the
revenues available to the County will inevitably decline. Given this reduction
in resources, and given the inevitable shift in County emphasis away from
providing local urban services, it is likely that the County will find itself
unable to continue providing local services to urban areas like Fairwood at
current levels.
Other factors to be considered by the Boundary Review BoardWashington law lists factors that must (shall) be considered by the
Boundary Review Board when it prepares to make its recommendation
regarding a proposed annexation. Sections 4 6 of this study address the
financial feasibility of a new City of Fairwood, and then Section 7 of the study
addresses the other factors listed in statute:
RCW 36.93.170 In reaching a decision on a proposal or an alternative,
the board shall consider the factors affecting such proposal, whichshall include, but not be limited to the following: (1) Population and
territory; population density; land area and land uses; comprehensive
plans and zoning, as adopted under chapter 35.63, 35A.63, or 36.70
RCW; comprehensive plans and development regulations adopted
under chapter 36.70A RCW; applicable service agreements entered into
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Municipal services; need for municipal services; effect of ordinances,
governmental codes, regulations and resolutions on existing uses;
present cost and adequacy of governmental services and controls inarea; prospects of governmental services from other sources; probable
future needs for such services and controls; probable effect of proposal
or alternative on cost and adequacy of services and controls in area
and adjacent area; the effect on the finances, debt structure, and
contractual obligations and rights of all affected governmental units;
and (3) The effect of the proposal or alternative on adjacent areas, on
mutual economic and social interests, and on the local governmental
structure of the county. The provisions of chapter 43.21C RCW, StateEnvironmental Policy, shall not apply to incorporation proceedings
covered by chapter 35.02 RCW.
The incorporation process
Washington law, particularly RCW 35.02 and RCW 36.93, provides the
process by which an area can become an incorporated city. Typically, the
incorporation process begins with a petition drive by area residents. Ifadvocates succeed in amassing voters signatures equal to at least ten percent
of the registered voters of the proposed area of incorporation, then the King
County Council notifies the Boundary Review Board of King County. The
Boundary Review Board typically chooses to commission an independent
analysis of the proposed incorporation. After the study is completed, the
Boundary Review Board will convene a public hearing to consider the study,
take testimony, consider the factors in RCW 36.93.170-1801, and recommend
in favor of or against incorporation. A referendum would then be held amongthe residents of the proposed area of incorporation to determine the ultimate
success or failure of the proposed incorporation.
If the incorporation election is successful, another election will be held to
elect the city council that will preside over the city government. The city
incorporation becomes effective between 6 months and a year after the first
election, and the winners of the council election have the authority to make
interim plans for the new city in order to ensure a smooth transition on the
date the new city is formally incorporated.
Methodology
This study is designed to estimate the revenues and costs of an incorporated
City of Fairwood. We use the comparable city method to develop estimates
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data from the comparable city is usually converted to per capita revenues
and costs, and those per capita values are multiplied times Fairwoods
population to estimate Fairwoods revenues and costs.It is important to notethat the per capita and comparable city approach assumes similar levels of
service as the comparable city.
The comparable city chosen for this analysis is the City of Maple Valley,
based on an analysis of demographic and economic indicators that most
closely resembled Fairwood. The choice of Maple Valley was accepted by the
incorporation proponent group, the Fairwood Municipal Initiative (FMI) and
the Boundary Review Boards Fairwood Incorporation Review Sub-Committee (FIRSC).
There were cases however when the comparable city method was not
appropriate to measure Fairwoods costs, revenues and development
characteristics. The following data have been customized specifically for the
Fairwood area:
Population and housing metrics including growth rates, persons per housing unitand the average assessed value of new housing units. (Source: OFM, PSRC, KingCounty)
Assessed real property value and property tax revenue projections. (Source: KingCounty Assessor)
Retail sales tax revenues customized to existing Fairwood businesses andconsumer spending patterns in the area (Source: Washington State DOR and
Claritas)
Real estate excise tax revenues based on projections of new development(Source: OFM, PSRC, King County)
Planned capital improvement projects and maintenance for roads and storm waterinfrastructure (Source: King County)
No parks or recreation programs provided by the City and a continuation ofcounty park services and facilities in the Fairwood area.
Receipt of federal, state and county grants for capital projects starting in 2012and transportation impact fees starting in the first year of incorporation.
Finally, the goal of this report is to examine the long-term viability ofincorporation for the Fairwood community. Baseline data starting in 2007
were used to predict the costs and revenues of operation beginning in 2010
through 2015. This report does not examine costs and revenues associated
with a transition or start-up period if incorporation is approved.
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TABLE OF CONTENTS
Executive Summary ____________________________________________________________ i
Table of Contents _____________________________________________________________ vi
1. Introduction and Report Organization _________________________________________ 1
2. Scope and Methodology of the Study __________________________________________ 5
3. General Characteristics of Fairwood _________________________________________ 15
4.
Revenues (Income) for Fairwood __________________________________________ 19
5. Costs (Expenditures) for Fairwood _________________________________________ 39
6. Financial Feasibility for Fairwood __________________________________________ 47
7. Other Factors to be Considered ______________________________________________ 53
Appendix A: Key Inputs and Assumptions________________________________________ 62
Appendix B: Alternative Scenarios _____________________________________________ 63
Appendix C: Fairwood Population Baseline, Forecasts and Methodology ______________ 67
Appendix D: Identification of Comparable City for Fairwood Incorporation Study_______ 75
Appendix E: Additional Market Considerations ___________________________________ 79
Appendix F: Incorporation Process and Role of Boundary Review Board ______________ 81
Appendix G: King Countys Countywide Planning Policies Related to Annexation and
Incorporation _______________________________________________________________ 86
Appendix H: King County Policies and Programs Related to Annexation and Incorporation 88
Appendix I: Fairwood Budget Spreadsheets ______________________________________ 90
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1. INTRODUCTION AND REPORT ORGANIZATION
Policy reasons for incorporation
State law and county planning policies encourage unincorporated areas
within King Countys Urban Growth Boundary to either incorporate as their
own city or annex to their neighboring cities.
The Growth Management Act, King County Countywide Planning Policies,
and the King County Comprehensive Plan encourage all unincorporatedareas within King Countys Urban Growth Boundary to pursue incorporated
status either through incorporation or through annexation. The underlying
rationale for these policies is succinctly summed up in RCW 36.70A.110: In
generalit states, cities are the local government most appropriate to provide
urban governmental services.
As the last remaining unincorporated area within the urban growth
boundary area southeast of the City of Renton, Fairwood is an obvious
candidate to receive its local services from municipal government.
To facilitate this community process, in August 2008, King County hired a
consultant team led by Henderson Young & Company to prepare an
incorporation study of Fairwood. Henderson Young & Company is assisted in
this task by Community Attributes and ICF Jones & Stokes.
The incorporation process
The incorporation process is designed, first and foremost, to be local in nature
(See RCW 35.02 and RCW 36.93). For a new city to be successful in the
future, it must enjoy broad support among area residents; support that will
ultimately manifest itself in the form of a direct vote for incorporation.
Typically, the incorporation process begins with a petition drive by area
residents. If advocates succeed in amassing voters signatures equal to at
least ten percent of the registered voters of the proposed area ofincorporation, then the King County Council would notify the Boundary
Review Board of King County. The Boundary Review Board typically chooses
to commission an independent analysis of the fiscal feasibility of
incorporation. The Boundary Review Board will convene a public hearing on
the matter during which it will consider the study, take testimony, consider
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the winners of the council election have the authority to make interim plans
for the new city in order to ensure a smooth transition on the date the newcity is formally incorporated.
The history of Fairwoods consideration of incorporation
Washingtons 1990 Growth Management Act (GMA) includes a strong
impetus and rationale for unincorporated parts of urban areas to become
municipal areas, either by incorporation or by annexation to existing cities.
King County policies adopted to implement GMA provide all unincorporated
areas within the Urban Growth Boundary will assume incorporated status
either through annexation or incorporation by 2012.
In June 1999, a group of residents in the Fairwood area (also called the
Petrovitsky Corridor) requested a study assessing the governance
alternatives available to the area. The study Petrovitsky Corridor
Governance Options Study was published in September 2000.
In the 2004 budget, King County launched a major initiative to facilitate thetransition of the remaining urban unincorporated areas to incorporated
status. Fairwood is one of ten large communities identified by the county as
a priority community for transition.
In September 2005, a group of citizens in the Fairwood area (also called the
Petrovitsky Corridor) petitioned the Washington State Boundary Review
Board for King County (BRB) to initiate the process of incorporation. The
study Analysis of the Financial Feasibility of the Proposed City of Fairwoodwas published in January 2006.
The citizens of the Fairwood area voted on incorporation in September 2006.
The close result (48.72% in favor; only 136 more votes were cast in favor of
remaining unincorporated over incorporation) prompted another group of
Fairwood citizens to file a notice of proposed incorporation with the BRB on
April 16, 2007 for another opportunity to incorporate. A petition drive was
completed from May to early October 2007. A notice of Intention toIncorporate along with the signed petitions was delivered to King County on
October 22, 2007.
In response to the current petition, the BRB hired the consultant team of
Henderson, Young & Company, Community Attributes, and ICF Jones &
Stoke to e a e a i co o atio t d fo Fai ood
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If Fairwood were a fully-operating city, would its revenues be great
enough to cover the costs it would incur to provide existing or betterservices to its residents?
This report has been designed to determine if incorporation is financially
feasible for the Fairwood Incorporation Area.
Report Organization
Section 2 of our report describes the scope of the study, our methodology, data
sources and assumptions. In section 3, we present a summary of the general
characteristics of the Fairwood area, including a map and basic statistical
data used in our calculations. Section 4 contains our analysis of the revenue
(income) Fairwood would receive if it incorporates. Section 5 contains our
analysis of the expenditures (costs) Fairwood would incur if it incorporates.
Section 6 contains our analysis of the financial feasibility (summary of costs
and revenues) for Fairwood if it incorporates. Section 7 contains other factors
that Washington law requires to be considered by the Boundary Review
Board.
Finally, there are several appendices that provide additional and technical
details that support the analysis, as follows:
Appendix A: Key Inputs and Assumptions.A summary of key inputs andassumptions that drive the model.
Appendix B: Alternative Scenarios.Analysis of the impact on the baselinescenario from changing values in key inputs and assumptions. The sectionincludes summary findings of an alternative scenario for Fairwood, relying onthe Maple Valley budget as a reference, while varying some inputs.
Appendix C: Fairwood Population Baseline, Forecasts and Methodology.Technicaldocumentation of calculating current population for Fairwood.
Appendix D: Comparable Cities Data.A summary of data compiled forcommunities comparable to Fairwood in various metrics. Steering committeesutilized this list to agree on choosing Maple Valley as the reference model forthe analysis.
Appendix E: Additional Market Considerations.A review of key marketindicators that influence public revenues and growth, such as recent home sales,
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Appendix H: King County Policies and Programs Related to Annexation
and Incorporation
Appendix I: Fairwood Budget Spreadsheets
Washington law governing incorporation
Washingtons state laws that authorize and provide the process for
incorporation are found in Chapter 35.02 RCW (Revised Code of
Washington).
The state law concerning the Boundary Review Board and its role in the
incorporation process are contained in Chapter 36.93 RCW.
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2. SCOPE AND METHODOLOGY OF THE STUDY
Scope of the study
Financial feasibility
First and foremost, this study evaluates the financial feasibility of an
incorporated City of Fairwood. Our job is to identify the most likely revenues
and expenditures for the City of Fairwood so the reader can determine
whether or not the Citys revenues would be great enough to cover the costs itwould incur to provide existing or better services to its residents.
The body of our report reports the most likely outcomes based on the data
and assumptions described in our report. In addition, Appendix B reports the
alternative scenarios of several key variables that are less likely, but not
unrealistic.
Our financial analysis is focused on the Citys first full year of operation. We
anticipate that year could be 2010, but our analysis is valid for a different
initial year because we do not include inflation in either the revenues or the
costs in our analysis, as will be explained later. The only factor in our
analysis that causes changes in annual revenue or costs is the amount of
growth in Fairwood.
Our study also includes a multi-year forecast of the first full year of operation
and the five succeeding years: 2010, and 2011 2015. This analysis indicates
whether the assumed growth increases or decreases the relative surplus ordeficit of revenues compared to expenditures. In other words, is the financial
picture likely to get better or worse during the first six years of operation.
We do not provide an analysis of the year during which incorporation takes
effect because most newly incorporated cities are in business for only part of
a fiscal year, and the unique cash flows, and exceptional sources of revenue
for interim operations do not affect the more important question of ongoing
financial feasibility.2 Factors to consider during the start up of a new cityinclude:
Partial year operations
Transition to cash flow of key revenues (property taxes, sales taxes, etc.)
Initial costs of space, furnishings, equipment
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Adoption of interim codes, ordinances, and plans
Need for (and cost of) comprehensive plan
Also, some of the services may be contracted initially, and some equipment may
be leased or purchased on credit. These are among the many issues that a newlyincorporated city must consider.
Services
Some of the services that cities provide are essential (core) services and
others are discretionary. The City Council of a city determines which
services to provide, including the level of those services. The City Council
also decides which services that will not be provided by the city government.
For the purpose of this study, the BRB identified potential city services as
core or discretionary as follows (in alphabetical order in each group):
Core (Non-Discretionary) Services and Facilities
Building/Planning
City Administration
Fire
Police
Solid Waste
Stormwater
Streets, Sidewalks Wastewater
Water
Discretionary Services and Facilities3
Human Services
Library
Bicycle Facilities
Parks and Recreation
Transit Support Facilities
Identifying a service as core or discretionary is not the last word about
city services. Cities may decide which core services will be provided by
other government agencies, or by contracts, or by city employees. In addition,
cities may decide to provide some discretionary services if money is available,
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Additional methods
A few of Fairwoods characteristics, costs and revenues can be estimated
more accurately using methods other than the comparable city method.
Estimation of the following key baseline data and budget items benefitted
from data specific to Fairwood:
Population and development. Currently no estimates of population,
housing or anticipated growth rates are published specifically for the
Fairwood Incorporation area.5.Customized estimates of Fairwoods
population, number of housing units, and persons per housing units for 2000
and 2007 were derived using US Census, Washington State Office of
Financial Management, and King County Assessors Data. Population growth
rates were also customized for the Fairwood Area and drawn from King
County Countywide Planning Policy growth targets, Puget Sound Regional
Council population forecast estimates, as well as historical growth rates from
2000 to 2007. SeeAppendix C for a detailed overview of methodology used
to estimate baseline data and growth forecasts.
Property taxes. Projection of future property tax revenues are estimated
using the 2007 assessed valuations of real property in the Fairwood
incorporation area derived from 20007 King County Assessor data and GIS.
The assessed valuation of Fairwoods existing buildings and lands,
predictions on the value and tax revenue associated with new construction,
and an assumed City millage rate allow for specific property tax revenue
projections to be customized for Fairwood.
Sales tax. The amount of sales tax received by a city is based in large part on
the amount of taxable sales activity at businesses in the city. Since there is a
significant difference in the amount of business activity in Fairwood
compared to Maple Valley, we did not use Maple Valleys sales tax data to
prepare our forecast for Fairwood. Our estimate of retail sales from local
businesses to local residents was calculated using an inventory of businesses
and customized sales data from the Washington State Department of
Revenue.
New legislation that impacts local retail sales tax revenues became effective
July 1, 2008. The law pertains to streamlined sales and use tax (or SST).
Washington retailers delivering goods to customers in Washington are now
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collecting sales tax based on where the customer receives merchandise - the
destination of the sale. If incorporated, Fairwood will receive additional
sales tax revenue associated with goods ordered online or other outlets
outside of Fairwood and delivered to Fairwood. To address this new source of
revenue, data on local retail consumption was obtained from Claritas Inc.
from which destination-based sales tax revenues were calculated.
Real estate excise tax (REET) revenues. REET revenues are estimated
for the Fairwood area based on predicted property sales as well as the
characteristics and value of existing residential and commercial located in
the area.
Capital costs. Each citys capital costs depend on a variety of circumstances
that are uniquely local in character. Examples of variations include the age
and condition of existing infrastructure, level of service standards, and rates
of growth. Maple Valleys capital expenditures are not likely to be a good
forecast of Fairwoods needs, therefore we assembled information based on
King Countys assessment of present condition and future needs for street
and stormwater facilities.
Parks. The City of Maple Valley provides several municipal parks, but
Fairwood would not own any parks upon incorporation. King County has
indicated it will continue to manage existing parks in the Fairwood area
including Petrovisky Park and Lake Youngs Park. Costs and revenues
incurred by Maple Valleys parks and recreation program are not considered
in this incorporation study.
Receipt of grants and other revenue sources for mature cities.
Federal, state and local grants and development impact fees are two primary
sources of revenue that take time for new cities to acquire. In these cases, it
is assumed that a new city of Fairwood would collect $30 per capita in grant
funding beginning in its third full year of operation. We assume Fairwood
would collect King Countys transportation impact fee, which is lower than
Maple Valleys current charges. Solid waste franchise fees that are available
to Maple Valley would not be available to Fairwood until 7 years afterincorporation and have been excluded from our analysis.
Data sources
The data we use in this study was provided by state, regional and local
D t i l d
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Revenues and costs
City of Maple Valley
King County
Washington State Department of Revenue
Claritas
AssumptionsThe findings of this study depend upon a combination of data (facts) and
assumptions (estimates or presumptions). Understanding the assumptions of
a study is important to understanding the findings and conclusions of the
study. Assumptions are the caveats emptor of analyses, and must be
understood and taken seriously by readers and users of studies.
We identify many specific assumptions throughout the body of the report and
a summary of key inputs and assumptions if presented inAppendix A.
There are, however, several overriding assumptions that apply broadly to
this analysis and are therefore key to understanding our findings. These
assumptions are:
Levels of service similar to comparable city
Fiscal feasibility of incorporation has been assessed based on the assumption
that an incorporated City of Fairwood would offer levels of service similar to
those now provided by the comparable city of Maple Valley at similar levels of
taxation experienced in the Fairwood area.
Responsibility for services and facilities
When an area incorporates as a city, the responsibility for governmental
services and facilities fall into three categories:
1. Services that remain the responsibility of existing government agencies.
2. Services that become the responsibility of the new city.
3. Services that the city has the choice to provide itself or to continue to
arrange for the service to be provided by an existing government agency.
A variation on alternatives 2 and 3 is for the City to become responsible for a
service but the City chooses to contract with another government agency to
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Services to be Provided by Existing Agencies
The following services and facilities would not change as a result of
incorporation, therefore they are not analyzed in this study:
Public Health King County
Schools Renton School District and Kent School District
Solid Waste Waste Management
State Roads State of Washington
Transit Sound Transit and King County Metro
Services to be Provided by FairwoodThe following services and facilities would be the responsibility of the City of
Fairwood (to be provided by city employees or by contracts with other
agencies where the contract is subject to authorization and renewal by the
City Council and oversight by the City Manager):
Law Enforcement (Police, Jail, Courts, Animal Control)
Streets and Roads Stormwater
Land Use Planning and Regulation
Human Services
Administration (City Council, City Manager, City Clerk, Attorney,
Finance, Personnel)
Services that Fairwood Continues from Existing Agencies
We assume that the City of Fairwood will choose to have the followingservices and facilities provided by the existing government agency:
Water and Sewer Cedar River Water and Sewer District and Soos Creek
Water and Sewer District
Fire Protection and Emergency Medical Services Fire Districts 40 and376
Library King County Library System (District)
Regional Parks and Recreation King County
Population, housingAs part of our research for this study we prepared current estimates and
forecasts of future population and housing in Fairwood. Our analysis
produced three forecasts of future growth rates using data sources from the
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Washington State Office of Financial Management, King County, and Puget
Sound Regional Council. The methodology used for these forecasts are
presented in detail in.Appendix C. Our study assumes that population will
continue to grow at the same 1.8% compounded annual population growth as
it has from 2000 to 2007. This is the most likely growth rate, notwithstanding
that it is the highest of the three scenarios analyzed inAppendix C
Revenues and costs
We assume that taxes, fees, charges will continue at approximately the same
level as today. We calculated the areas property tax and sales tax base forexisting real property and economic activity in the Fairwood community. We
also customized estimates of new revenues based on estimates of growth in
the Fairwood area, including sales tax on new construction and new
consumer spending, property tax revenue from new development, as well as
real estate excise tax revenue based on anticipated market turnover for the
Fairwood area. We only include new revenues when they are used by the
comparable city (Maple Valley) and are widely used by cities in King County.
We assume that costs of most services provided by Fairwood will be
approximately the same cost per capita for Fairwood as the cost per capita in
the comparable city (Maple Valley). Capital costs, however, are not based on
the comparable city because of the many factors that lead to different needs
for capital improvements (i.e., age and condition of existing infrastructure,
and levels of service, to name two). For potential capital costs, we used King
Countys analysis of future needs and its recent expenditures in the Fairwood
area as stronger inputs to our forecasts.
Our projections of revenues and costs for determining fiscal feasibility should
be conservative. This means that, when in doubt, we have attempted to err
on the low side for revenues and on the high side for costs.
Our financial analysis is focused on the Citys first full year of operation. We
anticipate that the first year of municipal operation could be 2010, but our
analysis is valid for a different initial year because we do not include inflationin either the revenues or the costs in our analysis7. The only factor in our
analysis that causes changes in annual revenue or costs is the amount of
growth in Fairwood.
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Caveats
The reader is advised of the following attributes of this study:
There are no rankings of Fairwood compared to other cities in King
County because the feasibility of Fairwood is absolute (it works, or it does
not) regardless of its position relative to other cities.
There is no conclusion of whether or not Fairwood works or not because
our study reports the results of our analysis and lets each reader draw
their own conclusion.
Fiscal model planning tool
At the conclusion of this project, we will provide a copy of the financial model
(including sales tax calculation methodology), and documentation regarding
its use. The model will provide a multi-year cash-flow analysis, showing the
estimated effects on revenue and expenses based on development and policy
changes during the course of the forecast period. This will allow for a
snapshot of annual revenues and expenses at each of the future years, along
with a comprehensive understanding of the cumulative effects over the time
horizon. The model will include the following features:
transparency and flexibility, seeing all inputs and assumptions clearly
with the ability to change projections via scenario analyses and
varying assumptions (including economic, policy and growth
assumptions)
detailed cash-flow charts, showing the dollar amounts of annual costsand revenues, and cumulative effects of key drivers (population,
property values)
break-out charts and analysis, demonstrating annual fluctuations andcumulative flows of costs and revenues of key line-items and sub-
totals
Our study (and the model inputs) documents the demographic, level of
service, and economic assumptions that were used to prepare the most
likely (i.e., reasonable) fiscal future of the potential City of Fairwood. In
recognition of the fact that other outcomes are possible, the BRB and/or the
City of Fairwood can use the model to test alternative assumptions that
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Fund accounting
Local government revenue (income) comes from a variety of sources. Some
of the sources can be used for virtually any purpose, while others have
strings attached that limit the use of the money to specific purposes. In
order to keep track of the restricted money, cities create funds to account
for the restricted money. A fund is like a separate bank account for
receiving and spending money with specific restrictions. A typical city will
have a fund for stormwater, a fund for streets, and other separate funds for
various specific revenue sources. All the money that has no restrictions goes
into the General Fund. Throughout our analysis, we will clearly identifythe fund that is used for the revenues and expenses we are forecasting. In
city finance terminology, funds are not a synonym for revenue, they are
separate accounts to track specific limits on some city money.
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3. GENERAL CHARACTERISTICS OF FAIRWOOD
Fairwood is an urban unincorporated area bordering the Urban Growth
Boundary on the east and south and the City of Renton on the north and
west. The area is 6.27 square miles. The Fairwood area is composed of
several single-family neighborhoods, with residential land uses accounting
for the majority of the communitys land area. The following neighborhoods in
Fairwood area include:
Central Neighborhoods: Candlewood Ridge, Carriage Wood, Carriages at
Fairwood, Fairway Drive, Fairway Greens, Fairway Village, Fairwood
Apts, Fairwood Greens, Fairwood Landing, Fairwood Pond, Fairwood
Villa, Heritage at Fairwood, On the Greens, Whitney Place and Woodway
Estates.
East area neighborhoods:
Lake Desire, Lake Youngs North, Parks, Shady Lake, Trovitsky Park
and Woodside.
North area neighborhoods: (North of the power line)
Elliott Farm-The Gables, Elliott Farm-Woodward, The Highlands at
Fairwood and The Ridge.
South area neighborhoods:(south of Petrovisky Road, unless
immediately adjacent) Alpine Manor, Bollman, Boulevard Lane,
Bridlewood, Carriage Lane, Cedar Estates, Country Gate, Echo Glen,
Fairfield Glen, Fairhaven, Fairwood Firs, Fairwood Glen, Fairwood PondEstates, Fairwood - South Central, Fieldstone, Forest Estates, Forest Glen
South, Forest Trails, Fox Estates, Kentridge Place, Lake Youngs West, Lori
Lane, Pheasant Meadow, Rock Creek, Ruddell, Soos Creek Meadows, Soos
Creek South, Sunwood Estates, Windham Ridge.
West area neighborhoods: (west of 140th Way SE)
Emerald Vista, Fairlane Woods, Fairwood Crest, Fairwood West,
Merrihill, Pebble Cove, Red Mill and Stafford.
Commercial uses are clustered at the main crossroads of SE Petrovitsky and
140th Way SE.
Exhibit 1 below provides a land use map of the Fairwood incorporation area.
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Exhibit 1.
Fairwood Incorporation Study Area
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Population
As part of our research for this study we prepared forecasts of future
population and housing in Fairwood. Appendix C explains in detail our
evaluation of three different sources of demographic data: King County,
Puget Sound Regional Council, and historical growth patterns. Our analysis
produced three forecasts of future growth rates. Exhibit 2 below summarizes
anticipated population for each growth scenario based on a 2007 population
of 25,000.
Exhibit 2.Fairwood Population Growth Forecasts
Forecasted Population CAGR 2000 2007 2010 2015
Low Growth Scenario 0.3% 22,100 25,000 25,222 25,596
Medium Growth Scenario 0.8% 22,100 25,000 25,582 26,582
High Growth Scenario 1.8% 22,100 25,000 26,356 28,783
Our study assumes that the most likely growth rate is the high growth
scenario of 1.8% per year. This assumes that population will continue to grow
at the same pace in the future as it did from 2000 to 2007. The low growth
scenario is actually the minimum growth allowed under the growth
management act, and is not a forecast per se. The medium growth scenario is
extrapolated from older regional forecasts that are being revised.
Taxable Assessed Value
The Assessors Office of King County reports that the 2007 taxable assessed
value of real property in unincorporated Fairwood was roughly $2.14 billion.8
In order to project this value to 2009 assessed value (the value on which year
2010 property taxes would be levied) we assume zero percent appreciation
and an average $38.1 million in new assessed value each year from new
construction under the high growth scenario.
Using this approach, Exhibit 3 demonstrates that we arrive at our final 2010
projection for taxable assessed value of roughly $2.26 billion and 2015
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taxable assessed value of $2.46 billion. In per capita terms, this translates to
roughly $86,000 of taxable assessed value for each Fairwood resident.
Exhibit 3.
Fairwood Assessed Real Property Value under the Low Growth
Scenario, 20007 - 2015
2007 2010 2015
Total Assessed Real Property
Value $ 2,144,801,925 $ 2,259,835,732 $ 2,464,264,647
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4. REVENUES (INCOME) FOR FAIRWOOD
Urban municipalities typically rely on three major sources of funds: property
taxes, sales taxes and utility taxes, and also collect other smaller amounts of
revenue from other sources which will be described later in this section.
Exhibit 4 below shows the anticipated 2010 general fund revenues for
Fairwood if incorporated. Exhibit 5 shows estimated general revenues for
the City of Fairwood from 2010 to 2015.
Exhibit 4.
Estimated City of Fairwood General Fund Revenues, 2010
$3.7
$2.5
$0.8
$0.4
$0.3$0.3$0.2$0.2
$0.07
$0.05
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
Millions
Gambling taxes
Licenses and servicecharges
Public Safety fines andforfeits
Public Works licenses andfees
Franchise fees
Intergovernmental revenue
Development permits andlicenses
Utility taxes
Sales tax
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Exhibit 5.
City of Fairwood Estimated Total General Fund Revenue, 2010-2015
Year 2010 2011 2012 2013 2014 2015
General Fund
Revenue
$8,354,898 $8,501,864 $8,652,197 $8,803,876 $8,961,100 $9,118,940
Readers should bear in mind that not all revenues received by Fairwood will
be available to the general fund to cover the expenses associated with the
day-to-day operation of the city. A number of revenue sources listed in our
analysis are restricted in their use. For example, gas tax distributions mustbe deposited in a fund for the construction, improvement, chip sealing, seal-
coating and repair of arterial highways and city streets.9 Other examples are
real estate excise taxes that must generally be spent on capital investments,
and surface water management fees that must be used for maintenance and
capital costs of surface water facilities and programs. In our analysis all
these restricted revenues are allocated to separate funds.
Key revenues
Property tax
For many cities in Washington State, property tax revenues are the single
largest and the most stable source of revenue available. In general, a
property tax levy rate is set annually by the City Council and is applied
uniformly to the value of all taxable property within the boundaries of the
city. Many taxing jurisdictions, like school or fire districts, have boundariesthat cut through the proposed area of incorporation, and as a result, different
areas of Fairwood are, and even if incorporated, would continue to be subject
to different levy rates. The levy for the incorporated city, however, would
apply to all taxable property within the city boundaries.
State law delineates what types of property are and are not subject to
property taxes. Those that are subject to taxation include real property
(land, structures, and specific equipment affixed to structures) and some
forms of personal property (some types of mobile homes, business related
machinery, and supplies). While all of these types of property within a citys
jurisdiction are assessed, some are exempt from taxation. These exemptions
generally apply to properties owned by government, schools, churches, or
property with other uses that provide public benefits.
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allowed a maximum regular levy of $3.60 per $1,000 of assessed value. If a
city does not provide either of these services, state law generally restricts the
maximum regular levy to $1.60 per $1,000 assessed value. The working
assumption of this feasibility assessment is that, in an incorporated
Fairwood, both fire and library services would continue to be provided by
existing fire and library districts, so the $1.60 maximum city regular levy
rate would apply.
Of course, simply levying a tax does not guarantee full and immediate
payment by all property owners. For any city, there will always be some
taxes that are due but go unpaid. Fortunately for a citys finances, however,when it comes to property taxes, almost all taxes that are levied are
eventually paid in full. For an established city, defaults in any given year are
mostly balanced out by receipts of back taxes from previous years. Therefore,
since our assessment of feasibility is based on estimating the financial
circumstances of afully functioningCity of Fairwood, we assume that
receipts of back taxes would largely net out current-year delinquencies.
Combining our assumed delinquency rate, the levy rate of $1.6000 per $1,000of assessed value, and an estimated assessed real property value of Fairwood,
we project that, in the year 2010, an incorporated Fairwood would receive
roughly $3.68 million in real property tax revenues.
A. City Property Taxes: City property taxes are levied only on property that is
inside the boundary of the City. City property tax levies are used for any
department, program, or service of the City that levys the tax. State law
limits the levy rate set by City government to $3.60, but the voters in a citycan approve extra taxes at an election.
B. Consolidated Property Taxes: Consolidated property taxes are paid by all
properties in King County, regardless of whether the property is in a City or
in unincorporated King County. The consolidated property tax levies are
actually the combined total of several separate property taxes. Incorporation
will not affect payment of Consolidated property taxes. Exhibit 6 shows the
individual property taxes that make up the 2008 consolidated levy:
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Exhibit 6.
Components of the 2008 Consolidated Property Tax Levy
C. County Road Property Taxes: The County Road property tax is paid only
by properties in unincorporated King County, and properties inside cities do
not pay this tax. The County Road property tax levies are used by King
County to pay for part of the cost of building and maintaining roads inunincorporated King County. If the Fairwood area incorporates, it will no
longer pay County Road property taxes. The 2008 levy rate for County Roads
was $1.61081. (Note how close in value this rate is to the City rate discussed
in prior sections of $1.60, resulting in a slight net decrease in property taxes
paid for taxpayers with this exchange )
Tax 2008 Levy
Rate
State School Fund 2.13233
County Current Expense .76686
Inter-County River .00015
Veterans Aid .00706
Mental Health .01570
Councilmanic Bond Redemption .05923
Lid Lift:
Parks .05000
Zoo/Open Space/Trails .05000 Veterans/Human Services .04232
AFIS .05146
Conservation Futures .04641
Bond Fund Unlimited .11851
Port General Fund .10447
Port Bond Fund .11912
Total Consolidated Levy 3.56362
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renovate existing schools (total levy of $2.62654). The Kent School District
property tax levy is the total of a special levy of $2.39044 used for a portion of
the operating costs of the school district, and a bond fund levy of $1.73225used to pay off bonds that were sold to build new schools and renovate
existing schools, and a building fund levy of $0.27067 for technology (total
levy of $4.39336). The properties in the Fairwood area that are in the Renton
School District or the Kent School district will not change school districts as a
result of incorporation.
E. Fire District Property Taxes: Fire District property taxes are paid by all
properties within the boundaries of the district. The majority of the proposedFairwood incorporation area lies within Fire District 40, and portions of the
incorporation area are in Fire District 37 (in the southeastern portion).
The Fire District property tax levy and benefit charges pay for virtually all of
the costs of a fire district, including payroll, supplies, services, and capital
items. In the event of incorporation, properties in the Fairwood area would
pay property taxes and benefit charges to the Fire District if the city annexes
to the Fire District. Alternatively, the city could contract with the FireDistrict for service in which case properties within the boundaries of
Fairwood would pay property taxes to the city and the city would use those
taxes to pay for the contract with the Fire District.
F. Library District Property Taxes: The library district property tax is paid
by all properties in the King County Library district, but properties inside
cities that have their own libraries, such as Renton or Seattle, do not pay this
tax. The King County Library Systems district property tax consists of a 50levy that pays for most of the costs of the library system, including payroll,
supplies, services, and the librarys collection of books and other materials,
plus a levy of $0.45336 for paying off a bond issue used to build libraries. If
the Fairwood area incorporates, it is assumed that it will annex to the King
County Library district and pay its property taxes.
G. EMS Property Taxes: EMS property taxes are paid by all properties in
King County, regardless of whether the property is in a City or in
unincorporated King County. EMS property tax levies are used for the
operating costs of King County Medic One that provides advanced life
support emergency response countywide. Incorporation will not affect
payment of EMS property taxes.
H H i l Di i P T H it l di t i t t t id
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Exhibit 7.
Comparisons of Property Tax Levy Rates for Unincorporated versus
Incorporated Fairwood
Information Item10 Unincorporated
Fairwood
City of
Fairwood
(Kent
Schools)
City of
Fairwood
(Renton
Schools)
A. City Levy Rate per $1,000
taxable value
not applicable $1.6000 $1.6000
B. Consolidated Levy Rate
(State School, County, Port) per $1,000 taxable value
$3.56362 $3.56362 $3.56362
C. County Road Levy Rate per $1,000 taxable value
$1.61081 not
applicable
not
applicable
D. School District Levy Rate
per $1,000 taxable value11
$4.39336 $4.39336 $2.62654
E. Fire District Levy Rate per $1,000 taxable value12
$1.00290 $1.00290 $1.00290
F. Library District Levy Rate
per $1,000 taxable value
$0.45336 $0.45336 $0.45336
G. EMS Levy Rate per $1,000taxable value
$0.30000 $0.30000 $0.30000
H. Hospital District LevyRate per $1,000 taxable value
$0.50854 $0.50854 $0.50854
I. Total Levy Rate per $1,000taxable value
$11.8326 $11.8218 $10.05496
10 Most Fairwood property owners pay the rate shown above (for levy codes 5100 and
5160). Other Fairwood property owners pay more than the rate shown above. The
total rates paid upon incorporation may vary depending on choices the City would
make. While the rates paid may affect taxes paid by local residents, the rates would
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Property tax levy rates are expressed as dollars and cents of taxes per $1,000
of taxable value. The amount of property taxes due by a property owner is
calculated by dividing the propertys taxable value by 1,000, then multiplyingthe result times the levy rate. For example, a home in Fairwood with a
taxable value of $300,000 would have its total tax calculated as follows:
$300,000 1,000 = 300 x $(11.8218) = $(3,547).
Property tax levy rates shown in Exhibit 7 vary from property to property
according to the boundaries of many taxing agencies. All properties that are
served by exactly the same taxing agencies are assigned the same tax code.
A property across the street may have all the same taxes except one, in whichcase it is assigned to a different tax code along with only those properties
that share exactly the same taxing agencies. There are many tax codes in
Fairwood. In order to obtain typical tax rates for this study, as presented in
the table above, we selected tax codes that applied to the greatest number of
parcels. For Fairwood, we used tax codes 5100 and 5160. The two codes have
the same levy rates across all levies. The two together represent 73 percent of
the parcels of land in the proposed incorporation area and 77 percent of the
taxable assessed value.
Exhibit 8 presents an estimate of property tax revenue for the Fairwood
Area upon incorporation for the years 2010 to 2015. Property taxes are
anticipated to account for nearly one third of all revenues collected by the
City of Fairwood. From 2010 to 2015, property tax revenues are estimated to
increase by approximately $333,000 per year because of growth in Fairwood.
Estimates of property taxes assume no appreciation or depreciation.
Our estimates also take into account the 1% limit on the increase in property
tax revenue (except for property taxes on newly developed properties).
Property taxes collected by local governments are capped. The property taxes
collected on existing real property cannot exceed one percent (cap of one
percent) more than last years total property tax proceeds. All new
construction however, is taxed at last years levy rate.
Exhibit 8.
City of Fairwood Estimated Property Tax Revenue, 2010-2015
Year 2010 2011 2012 2013 2014 2015
Property
Taxes
$3,678,904 $3,743,159 $3,808,504 $3,874,938 $3,942,823 $4,011,798
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to the construction or improvement of new or existing buildings, including
labor and services provided throughout the process. (See RCW 82.04.050)
Sales taxes are charged in cities and counties. King County has sales taxes.
At the time this study began, the sales tax rate was 9% in King County.
Voters subsequently approved a 0.5% increase in the sales tax rate in King
Countys urban areas beginning in 2009 to fund light rail development by
Sound Transit increasing the total sales tax rate to 9.5%.
The total sales tax rate of 9.5% consists of 6.5% for the State, and a series of
local option sales taxes. King County unincorporated areas all have 3.0% oflocal option taxes: 1% for the local government, 0.1% for criminal justice,
0.1% for mental health, 0.9% for King County transit, and now 0.9% for
Sound Transit (note: was previously 0.4% for Sound Transit). King County
receives an additional 0.5% that is charged on food and beverage sales at
restaurants and drinking establishments.
According to state law, a citys maximum sales tax rate is set at one percent,
which is the same rate that King County currently collects in unincorporatedareas of the county. Of this one percent, Washington States Department of
Revenue (DOR) receives one percent for its role as collector/distributor. (That
is, the DOR receives one percent of one percent.) Beyond that small portion
retained by the DOR, King County is eligible to receive 15 percent of the
citys one percent. Fairwood would thus receive roughly 84 percent of its one-
percent sales tax.
A citys one-percent sales tax is actually split into two halves: a base half and
an optional second half which a city could choose not to levy if it so desired.
In fact, however, the great majority of cities in the state choose to levy both
halves, as does King County. Therefore, our same cost/same level of service
analysis dictates that we assume an incorporated Fairwood would also levy
the full one percent.
Our preliminary estimate is that, in 2007, nearly 800 firms doing business in
Fairwood generated gross taxable sales of roughly $110 million. In total, we
forecast that an incorporated Fairwood would receive roughly $1.16 million inretail sales and use tax revenues annually from local businesses.
Sales tax also applies on the sale of newly constructed homes. Under the high
growth scenario we assume that between 174 and 190 housing units will be
b ilt i th F i d h N h i it ld b id d
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Streamlined Sales and Use Tax Revenues
In an effort to collaborate with a national program called the StreamlineSales and Use Tax (or SST), effective July 1, 2008, Washington retailers
delivering goods to customers in Washington started collecting sales tax
based on where the customer receives merchandise the destination of the
sale. For example, if a Fairwood resident purchases a couch from a furniture
store in Renton and requests home delivery, the sales tax will be based on the
rate in Fairwood.
If Fairwood incorporates, the local sales tax revenue would go to the City ofFairwood even though the store is in Renton. The destination sales tax is a
change for businesses that deliver merchandise in Washington. There is no
change for over-the-counter sales where customers take home goods from the
store location in Washington, and there is no change for sales to out-of-state
customers.13
As of mid-December, 2008, the Department of Revenue (DOR) had not yet
published local tax receipts associated SST revenues. Once published alongwith all other municipal revenue data, cities will be better able to forecast
local sales tax revenue. In the meantime, cities are each left to their own
devices to make such projections.
This report estimates home delivery sales for Fairwood residents based on
local disposable incomes and spending patterns. The estimates rely on relies
consumer buying power data purchased from Claritas Inc. for this report. The
Claritas data suggests average household disposable income of $58,900 in
2008 (money available for spending after housing costs have been covered).
Our own estimates of the percentage of sales by household on delivery items
suggest that approximately 6% of local spending will be on goods for delivery
from outside the city. This suggests SST revenue for the City of Fairwood at
$14.33 per capita, resulting in annual SST revenue estimates of $378,000.14
13 Thi de c i tio bo o hea il f o the de c i tio o ted b the Wa hi gto
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Criminal Justice Sales Tax Revenues.
Criminal justice sales tax revenues are available to counties and all citieswithin King County. A local option sales tax of 0.1 percent is collected in
addition to retail sales and use taxes by the Department of Revenue. Ten
percent of the money available for each county is first distributed to that
county. The remaining 90 percent is then distributed to cities and towns
within the county based on population. In 2007, Maple Valley received
$23.48 per capita in criminal justice sales tax revenues. Using this same per
capita figure, Fairwood would receive approximately $607,973 in 2010 in
criminal justice sales tax revenue. It should be noted that criminal justicesales tax proceeds are subject to consumer spending and total taxable retail
sales in King County. If retail sales increase or decrease in the future, so too
will the amount of tax revenue received by local governments from this
source. In this baseline analysis, criminal justice sales tax revenues are
considered static and are not adjusted based on future assumptions regarding
County retail spending and sales.
Exhibit 9 below shows the total anticipated sales tax revenues we estimatewill be received by the City of Fairwood from 2010 to 2015 if incorporated.
Retail sales taxes are estimated to account for over 21 percent of total
municipal revenue in 2010. It should be noted that locally produced retail
sales tax accounts for nearly 47 percent of all retail sales tax revenue and
nearly 10 percent of total municipal revenue. Sales tax on new construction
would account for approximately 12 percent of total sales tax and 2.7 percent
of total revenue. Destination-based sales tax revenues could account for 15
percent of total retail sales tax, and approximately 3.2 percent of totalmunicipal revenue. Criminal justice sales tax would account for nearly 25
percent of sales tax revenues and 5.2 percent of total city revenues.
Exhibit 9.
City of Fairwood Estimated Sales Tax Revenue, 2010-2015
Year 2010 2011 2012 2013 2014 2015
Sales
Taxes
$2,474,110 $2,517,880 $2,562,387 $2,607,548 $2,655,262 $2,701,898
Utility tax
Cities have the authority to charge utility taxes, but counties do not. Utility
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The maximum rate for each utility tax is 6.0 percent. The City of Maple
Valley's utility tax rates are 2.25 percent for electricity, natural gas, and
telephone services only. This study assumes the 2.25 percent rate, consistentwith the comparable city methodology. The Maple Valley ordinance defines
"telephone services" to include cellular phones, pagers, and cable modem
services.15
Maple Valleys utility tax rates translate to $29.20 in revenue per capita.
Fairwoods revenue at that same per capita rate would be nearly $770,000
per year beginning in 2010.
Exhibit 10 below shows the total anticipated utility tax revenue estimated to
be received by the City of Fairwood from 2010 to 2015 if incorporated. Utility
taxes are estimated to account for over 6.5 percent of total municipal revenue
in 2010.
Exhibit 10.
City of Fairwood Estimated Utility Tax Revenue, 2010-2015
Year 2010 2011 2012 2013 2014 2015Utility
Taxes
$769,601 $783,267 $797,195 $811,357 $825,782 $840,470
State-shared entitlement revenues
All cities and towns in Washington State are eligible to receive certain
shared revenues on the basis of their population. These are considered
entitlement revenues because each City is entitled to its share of the
revenues, and does not have to apply or otherwise qualify for the money.
There are two state-collected revenues that Maple Valley receives that would
also be received by Fairwood: profits from liquor sales and liquor taxes).
Maple Valley also receives state money from the City-County Assistance
Account, but Fairwood is not eligible for those funds.16 One other source of
state shared entitlement revenue, gasoline taxes, are discussed below under
Special Revenue Funds.
As a group, Washington cities and towns receive a fixed percentage of theliquor revenues, and that fixed percentage is then allocated to the individual
cities on a per capita basis. For shared profits from liquor sales, as an
example, Washington cities and towns as a group receive 40 percent of the
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total profits. This lump of money is then distributed to the individual
municipalities according to their respective populations. The liquor revenues
per capita received by Maple Valley are shown below in Exhibit 11.
Exhibit 11.
Per Capita State-Shared Entitlement Revenues
State Liquor Revenue Per Capita Revenue
Liquor Excise Tax $4.36
Liquor Profits $6.99
Based on Maple Valleys liquor revenues of $11.35 per capita, we anticipate
that Fairwood would receive roughly $299,000, beginning in 2010. Exhibit
12 below shows anticipated state-shared revenues (also referred to as inter-
governmental revenues) from 2010 to 2015 resulting from incorporation.
Exhibit 12.
City of Fairwood Estimated State-Shared Tax Revenue, 2010-2015
Year 2010 2011 2012 2013 2014 2015
Int-gov
Taxes
$299,123 $304,435 $309,849 $315,353 $320,960 $326,668
Other General Fund Revenues
A. Gambling Tax: Cities have the authority to charge gambling taxes. Local
governments set gambling taxes, but the tax rates cannot exceed limits in
state law. Taxes are based on gross receipts, or net receipts (i.e., gross
receipts less prizes). Exhibit 13 shows rates the City of Maple Valley
charges on gambling taxes by activity.
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Exhibit 13.
Maple Valley Gambling Taxes Rates by Activity
Tax Tax Rates
Amusement Games (net) 2%
Punch Boards and Pull
Tabs for profit (gross)
5%
Punch Boards and Pull
Tabs non profit (net)
5%
Bingo (net) 10%
Raffles (net) 10%
Card Games (gross) Activity not
allowed in City
Maple Valleys gambling tax revenues equate to $1.83 per capita, which for
Fairwood would amount to $48,000 per year beginning in 2010.
B. Franchise Fees: Cities and counties have the authority to charge franchise
fees. These fees are to repay the government for the use of public rights of
way or for the right to have an exclusive franchise within a jurisdiction. King
County has franchise fees. Franchise fees are also set by local governments.
Maple Valley receives $11.08 per capita in franchise fees for cable television.
Franchise fee revenues for cable television for Fairwood would generate
$293,000 beginning in 2010.
Maple Valley also charges franchise fees for solid waste services, however
RCW 35.02.160 prevents Fairwood from altering the existing franchise of
Waste Management for the duration of the franchise, or seven years,
whichever is less. After that time is over, Fairwood could contract with Waste
Management and collect franchise fees or Fairwood could provide its own
solid waste services.
C. Development Permit, Review and License Fees: Cities and counties have
the authority to charge fees for reviewing and processing applications fordevelopment. King County has development review fees. Development fees
are set by local governments and are imposed by Maple Valley. Maple
Valleys Community Development Department charges a range of fees
associated with development permits, the review process, building inspection
d li i B d t l ti l l ti f M l
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D. Public Safety Fines and Forfeits. City police departments and courts have
the authority to charge fines and forfeitures for various infractions and
violations as prescribed in state law. Maple Valley has established anagreement with the City of Enumclaw to use the Enumclaw municipal court
for their court services. The City of Maple Valley collects approximately 60%
of fine and forfeits proceeds and distributes the remainder to Enumclaw,
County and State sources. Like Maple Valley, Fairwood is assumed to
contract with another municipal court to provide court services. Maple
Valleys distribution framework and per capita revenue for public safety fines
and forfeits are assumed to be the same per capita for Fairwood. Fairwood is
estimated to receive $209,000 in revenues from the Public Safety departmentbeginning in 2010.
E. Public Works licenses and fees. Cities have the authority to recover the
costs of servicing and maintaining local infrastructure in some cases. Maple
Valleys public works department imposes fees for inspections, traffic
concurrency fees, and receives intergovernmental grants for waste reduction.
Based on Maple Valleys per capita public works revenues, Fairwood is
estimated to receive $157,378 in 2010.
F. Licenses and Service Charges, Including Special Business Licenses:
Licenses and service charges include pet license sales and service charges for
the sales of maps and publications as well as passport filling fees. Cities and
counties also have the authority to charge business license fees. King County
has business license fees. Cities and counties have different polices regarding
business license fees. King County only charges fees to business that it has
enforcement authority, and the rates vary by types of business to reflect the
extent of enforcement. Maple Valley requires a license for the following
business activities: amusement device establishments, amusement
establishments, billiard or pool places, public dances, secondhand dealers,
certain charitable solicitors, outdoor musical entertainment, and limited
special uses of City property or rights-of-way. Maple Valley and King County
both charge similar license fees of $100 per year with a $20 fee added for each
additional licensed activity per establishment. We assume that the Fairwood
would impose similar business license fees as well as fees for the services
mentioned earlier. Based on Maple Valley fees rates for licenses and service
charges, Fairwood would collect nearly $66,000 in 2010.
G. Business & Occupation Local Taxes: Cities have the authority to charge
Business and Occupation (B&O) taxes, but counties do not. Business and
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y
Rates of Other Taxes and Fees
Exhibit 14 compares rates for specific taxes and fees for unincorporatedKing County that currently affect Fairwood and assumed tax rates if
Fairwood was to incorporate. Incorporated tax rates are based on Maple
Valley tax rates and fees.
Exhibit 14.
Comparison of Other Taxes and Fees for Unincorporated versus
Incorporated Fairwood
Information Item Unincorporated
Fairwood
City of Fairwood
A. Gambling Tax percent of grossrevenue
2 - 11% 2 10%
B. Franchise Fee: Cable TV percent of gross revenue
5% 5%
C. Development Fees for review ofapplications
Varies bydevelopment
Varies bydevelopment
D. Public Safety fines and forfeits
for law violations
Varies by
infraction
Varies by
infraction
E. Public Works licenses and fees
for review and permits
Varies by
activity
Varies by
activity
F. Business License cost perestablishment
$100+$20 for
additionallicensed activity
$100+$20 for
additionallicensed activity
G. Business and Occupation
Local Tax percent of gross revenue
not authorized 0.0%
Exhibit 15 below shows total estimated municipal revenues from 2010 to
2015 derived from the other general fund sources A - G listed above.
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Exhibit 15.
City of Fairwood Estimated Other Tax Revenues, 2010-2015
Year 2010 2011 2012 2013 2014 2015Gambling taxes $48,124 $48,979 $49,849 $50,735 $51,637 $52,556
Franchise fees $292,056 $297,242 $302,527 $307,902 $313,376 $318,950
Development
permits, review,
and licenses
$360,346 $366,618 $373,648 $379,928 $386,967 $394,011
Public safety
fines and forfeits
$209,337 $213,054 $216,843 $220,695 $224,618 $228,614
Public works
licenses, fees
$157,378 $160,142 $163,113 $165,925 $168,943 $171,987
Licenses and
Service charges
$65,919 $67,089 $68,282 $69,495 $70,731 $71,989
Special Revenue Funds
As mentioned earlier, several sources of local government revenue are
restricted in their use. The following revenue sources are used specifically to
fund capital improvements and some maintenance expenses for roads,
surface water infrastructure, sidewalks and the public right of way. Special
revenue funds function like separate bank accounts, where public revenues
and costs are allocated for specific projects.
Transportation Mitigation or Impact FeesCities and counties have the authority to charge transportation mitigation or
impact fees. King County has such fees. Mitigation fees and impact fees are
set by local governments in compliance with strict rules in state law.
Mitigation fees follow the State Environmental Policy Act (SEPA), and
impact fees follow the Growth Management Act (GMA). The fees are one-time
payments by new development, and they cannot be charged for deficiencies
that existed before the development occurred. The rates in the Exhibit 16
are for single-family houses, but King County also charges the fees to other
types of development. King Countys fees are listed as a range of amounts
because the County charges different fees in different Mitigation Payment
System zones in the Fairwood area.
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the Fairwood area. Fairwood is estimated to receive $315,228 in
transportation impact fees from 174 new housing units in 2010.
Park Mitigation or Impact Fees
Cities and counties have the authority to charge park mitigation or impact
fees. King County does not have such fees. Park mitigation or impact fees are
subject to the same laws as transportation fees (above). The Fairwood
community is not expected to develop new parks, and it is expected that King
County will not transfer ownership of County parks within the incorporation
area to the City after incorporation. As a result, mitigation or impact fees forparks would not apply to Fairwood if incorporated.
Fire Mitigation or Impact Fees
Cities have the authority to charge fire impact fees, but fire districts do not.
Fire impact fees are subject to the same laws as transportation and park
impact fees (above). As described earlier in the study, it is expected that
Fairwood will continue to be served by Fire District 40 after incorporation,
therefore it would not impose fire impact fees upon incorporation.
Real Estate Excise Tax (REET)
Cities have the authority to charge an excise tax up to 0.5% of the sale price
of each real estate transaction. Maple Valley charges real estate excise taxes
and allocates these revenues to a real estate excise tax fund. REET revenue
is required to be used exclusively for capital improvements. Our estimate of
REET revenue includes Fairwoods residential property selling every sevenyears (therefore 14% per year), commercial properties selling every ten years
(thus 10% per year), and 174 new residential units per year. Fairwood will
receive over $1.5 million in REET revenue per year beginning in 2010.
Surface Water Management (SWM) Fees
Counties and cities have the authority to charge surface water management
(SWM) fees to fund operations and capital improvements for surface watermanagement facilities and programs. King County charges a SWM fee to
every property owner with either a house on a residential parcel or
impervious surface on commercial parcels. King County charges $111 for
residences. Maple Valley imposes SWM fees of $96.66 per residence or
i l t t f i l t U d l d it i th i
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Motor Vehicle Fuel Tax (Gas Taxes)
Gas taxes are distributed to all cities in Washington State on a per capitabasis and are required to be used for ongoing street maintenance. Maple
Valleys allocates all gas taxes to a street fund which is part of their capital
project funds. Fairwood is assumed to also allocate gas tax revenues to a
street fund. Fairwood is expected to collect approximately $23.17 gas tax
revenue per capita in 2010 amounting to nearly $611,000 available for street
maintenance.
Federal, State and County Grants.
Cities are eligible to compete for federal, state and county grants for a variety
of capital projects and some program costs. The City of Maple Valley has
been successful in the past in winning grant funding for capital projects. In
2006, Maple Valley obtained $3.8 million in grant funding and $4.2 million in
2007.
It is assumed that as Fairwood matures and develops the necessary plans to
qualify for grants, it will win some federal, state and county grants. For the
purpose of this analysis, we assume that it will take three years for Fairwood
to compete for and win grants; therefore we assume grant revenue will begin
in 2013. Based on Maple Valleys experience, we estimate grant revenues of
approximately $20,000 annually ($0.79 per capita) for surface water
management and nearly $30 per capita in transportation grant funding
beginning in 2012.
Exhibit 16 compares rates for fees and taxes for special revenue funds forunincorporated King County that currently affect Fairwood and the rates
assumed if Fairwood incorporates.
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Exhibit 16.
Comparison of Special Revenue Fund Rates and Fees for
Unincorporated versus Incorporated Fairwood
Information Item Unincorporated
Fairwood
City of
Fairwood
Transportation Mitigation or
Impact Fees per single familyhouse
$1,812 - $6,406 $1,812
Park Mitigation or Impact Feesper single family house
not reported Notapplicable
Fire Mitigation or Impact Fees per single family house
Not applicable Not
applicable
Real Estate Excise Tax percentof sale price
0.5% 0.5%
Stormwater Management Fee
per housing unit
$111 $96.66
Gas Taxes per gallon of gas $0.375 $0.375
Exhibit 17 below shows total estimated revenues from the sources listed
above that Fairwood would collect 2010 to 2015.
Exhibit 17.
City of Fairwood Estimated Special Revenue Fund Revenues, 2010-2015
Year 2010 2011 2012 2013 2014 2015
Transportation
Impact Fee
$315,288 $320,724 $326,160 $331,596 $338,844 $344,280
Real Estate
Excise Tax$1,562,348 $1,589,642 $1,617,406 $1,645,642 $1,674,347 $1,703,681
Surface Water
Mgmnt Fee$997,669 $1,015,388 $1,033,409 $1,051,730 $1,070,449 $1,089,470
Gas Tax $610,547 $621,389 $632,438 $643,674 $655,117 $610,547
Capital Project
Grants
$0 $0 $0 $819,030 $833,580 $848,400
Capacity to Generate Revenue
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5. COSTS (EXPENDITURES) FOR FAIRWOOD
Urban municipalities typically provide several basic services, includingpolice, streets, and stormwater. Many cities also provide parks and
recreational programs. Other core services may be provided by cities, or may
be provided by separate districts. These include water, sewer, and fire
protection.
Section 2 of this study includes a discussion of core and discretionary
services, and our assumptions regarding who will be responsible for each
public service. In summary, we assume that in Fairwood, the followingservices would be provided by the same jurisdictions that provide services to
th